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Seattle-area Crista Ministries now gilds gifts by only 6,400%

I didn’t know all that much about Crista Ministries, except that the the religious organization, based on the leafy grounds of a former TB sanatorium just north of Seattle in Shoreline, operated schools, senior citizen housing and radio stations, while selling a lot of advertising. But Crista also touted a foreign aid program called World Concern so big that the amount of donated goods it received and then distributed were sufficient to put Crista on past Forbes lists of the country’s largest charities. All that donated swag also made the charity look more financially efficient, about which a boastful claim was made on its Web site [and removed after this post went up].

But here’s what I know now. Crista’s numbers listing a large amount of donated goods were essentially bogus, or at least not grounded in reality. And they’re still essentially bogus, or at least not grounded in reality. And that claim of extraordinarily efficiency? Not really.

Let me explain.

Last year, after becoming New To Seattle, I wrote a story for Forbes about how, with accounting tricks, a number of charities across the country were using deworming medicine, used to fight internal parasites in Third World residents, to make themselves look bigger and better than they really are to would-be donors. Essentially, these charities were acquiring millions of pills that can be purchased in bulk for 2 cents or less and immediately putting them on their books at values as high as $16.25–an 81,000% exaggeration. The online versionwas headlined, “Donated Pills Make Some Charities Look Too Good On Paper.” The headline on the print version, however, was much better: “Magic Pills, Magical Accounting.”

Crista was one of the very biggest offenders in the entire country. For the fiscal year ended June 2011, it listed receiving $85 million in gifts. Some $63 million of that was deworming medicine valued at as high as $10.64 a pill–a 53,000% exaggeration. The average for all 12 million pills listed was a tad over $5–a mere 25,000% exaggeration. I figured the plethora of pills really was worth only about $240,000. That lowered Crista’s incoming gifts from $85 million to $23 million, knocking it off the Forbes list, which is based on the amount of gifts. (The new list for 2012 is here.)

Now Crista is out with its numbers for the year ending June 2012. Has it stopped exaggerating its numbers? In my opinion, nope, although the exaggerations were less.

In its new financial statement, Crista listed $24 million in gifts. Some $10 million of that was gift-in-kind, as donated goods are called. And of that $10 million, $9 million were deworming pills. In a separate written statement that reads more like an apology, Crista said it received about 7 million pills, and valued them at $1.30. While less than $10.64 or $5.00, that’s still amounts to a 6,400% markup over world market prices for mebendazole and albendazole, the primary deworming meds.

You don’t have to take my word for how cheap these deworming pills can be had. Click here to see actual prices from various manufacturers for mebendazole and click here for albendazole. Pennies per pill.

I figure the pills going through Crista were really worth just $150,000. So by my reckoning, Crista’s incoming total gifts were really not $24 million, but $15 million. Quite a drop from the $85 million claimed just two years earlier.

As for financial efficiency, World Concern, the Crista unit that handles the deworming pills, still proclaims online at this writing that “94% goes directly to the cause.” That sounds like a statement about charitable commitment, usually defined as expenditures in direct furtherance of the charitable mission as a percent of total expenses, which also include fundraising and certain overhead. But by World Concern’s own just-posted financial statement, the charitable commitment figure was just 87%. Marking the deworming pills to what I consider their true value, the figure fell even lower, to 83%. Looking at the consolidated Crista Ministries numbers, which include World Concern, charitable commitment was 89%.

Any way I see it, certainly not 94%.

As usual, I invite comments below from any interested party or reader.

The charitable sector is wild with rumors that a consortium of state and federal regulators is about to come down hard on charities puffing their numbers to the public as a way of attracting more donations. I’ve even been told that there’s an Internal Revenue Service team looking at this issue from an office in Seattle.

The location would be appropriate. The Seattle area is something of a hothouse for pumped-up deworming pill valuations and other forms of gift-in-kind enhancement. Besides Crista, big, big numbers have been booked in the past by World Vision in Federal Way and Pilgrim Africa in Seattle.

The charities are likely to claim that earlier “generally accepted accounting practices” allowed the inflated valuations. The IRS is already challenging that contention with one charity. So far, I haven’t heard a good explanation as to how an accountant who knows the cheap market price of a received commodity item can ethically suddenly declare it to be worth many times more.

Indeed, that separate statement says Crista previously was just doing what everyone else was doing and that the use of new values is “to stay in line with industry and accounting standards.” So Crista seems to be saying that a 6,400% exaggeration is simply the new normal. Boy, am I learning about Crista.

On the contrary, I believe under law it is the responsibility of the charity–and perhaps, its auditor–to make sure that the valuation of donated goods has a reasonable basis. After all, it is the charity–here, Crista–that gives the donor any receipts and files the tax return under penalty of perjury, not the donor. By your reasoning, if a donor gave Crista a dog that the donor said was worth $100,000, Crista would be required to certify the dog was worth $100,000. I don’t think so. It is well known in the charitable sector that deworming pills, a commodity item, can be bought for 2 cents each, or even less. So giving a receipt for a value 6,400% more than that has to be regarded as questionable. I suppose that if the donor(s) to Crista proved to Crista that they actually shelled out $9 million in cold cash to third parties in arms length transactions for the 7 million pills, Crista might have an argument. I rather doubt that such proof exists.

Isn’t it the requirement of the donor to value the in-kind donations of products? The charity isn’t supposed to / allowed to value them. Why wouldn’t the charity list the value given to them by the companies on their tax forms? Is it the companies claiming the high mark up on these pills? If the charity is the one setting the value of the gift, shame on them.